Stoke Therapeutics, Inc. — Q3 2019 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2019, with comparisons to the corresponding 2018 periods. Stoke is an early-stage biotechnology company developing antisense medicines using its TANGO platform. Its lead candidate, STK-001, is being developed for Dravet syndrome; the company has no approved products or product sales.
Key financial metrics
Amounts below are in millions of dollars, except per-share data. No operating margins are meaningful because revenue was zero.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $6.518 | $2.227 | $16.675 | $5.367 |
| General and administrative expense | $3.324 | $1.090 | $7.935 | $2.872 |
| Operating loss | $(9.842) | $(3.317) | $(24.610) | $(8.239) |
| Interest and other income, net | $1.238 | $0 | $2.445 | $0 |
| Net loss | $(8.604) | $(3.317) | $(22.165) | $(8.239) |
| Basic and diluted net loss per share | $(0.26) | $(4.75) | $(1.71) | $(11.90) |
- Liquidity: At September 30, 2019, cash and cash equivalents were $233.049 million; restricted cash was $0.205 million. Total assets were $238.827 million, current liabilities $4.916 million, and total liabilities $5.144 million. The filing reports no credit facility or committed capital source.
- Cash flow: For the first nine months of 2019, operating activities used $20.854 million and investing activities used $1.065 million; financing activities provided $149.570 million. Cash, cash equivalents and restricted cash increased by $127.651 million.
- Debt and commitments: The balance sheet reports no debt. Future operating lease payments totaled $2.613 million, including $0.281 million due in less than one year. Licensing agreements include contingent milestones and royalties; timing and likelihood were not estimable.
- Equity: The June 2019 IPO issued 9,074,776 shares at $18 per share. The filing reports approximately $151.9 million net of underwriting discounts and commissions but before offering costs, and approximately $149.4 million after offering costs. Preferred shares converted to common shares at the IPO; 32,724,153 common shares were outstanding at September 30.
Material changes versus prior comparable periods
- Q3 R&D expense increased by $4.291 million year over year, mainly reflecting greater STK-001 program activity, personnel, consulting and facility costs. Q3 STK-001-specific expense was $3.228 million, versus $0.541 million in Q3 2018.
- Q3 G&A expense increased by $2.234 million, primarily from public-company and business-support services, higher headcount and related costs.
- Q3 net loss increased by $5.287 million year over year. For the first nine months, net loss increased by $13.926 million, while R&D and G&A expenses rose substantially as development and operations expanded.
- The IPO materially strengthened liquidity; cash, cash equivalents and restricted cash increased from $105.603 million at December 31, 2018 to $233.254 million at September 30, 2019. The accumulated deficit was $47.875 million.
Outlook, management commentary, risks and unusual items
- Management expects operating losses, negative cash flows and expenses to continue, with R&D, G&A and capital expenditures expected to increase. Based on its current operating plan, it expects existing cash to fund operating expenses and capital requirements into 2023; management cautions that assumptions may prove incorrect and additional financing will ultimately be needed.
- The company planned to submit an IND for STK-001 by early 2020 and expected to begin a Phase 1/2 trial in the first half of 2020. It also planned to nominate a second genetic-disease candidate for preclinical development in the first half of 2020. These are forward-looking plans, not reported outcomes.
- FDA granted STK-001 orphan drug designation in August 2019. The company also reported that the first patient had enrolled in an observational study of children and adolescents with Dravet syndrome.
- Key risks include preclinical and clinical failure, regulatory uncertainty, difficulty enrolling patients in rare-disease trials, manufacturing and third-party dependence, intellectual-property and licensing exposure, competition, and the need to raise future capital. STK-001 had not been tested in human clinical trials as of the filing.
- Interest-rate sensitivity: management estimated that a hypothetical 100-basis-point rate change would affect the fair market value of cash equivalents by approximately $2.3 million.
- The filing disclosed no material legal proceedings, no off-balance-sheet arrangements, and no material change in internal control over financial reporting. Management concluded disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether the planned STK-001 IND submission and Phase 1/2 trial proceeded on the stated timeline, and the resulting safety and efficacy evidence.
- Whether the stated cash runway into 2023 remains valid as clinical, manufacturing and operating spending increases.
- The reconciliation of IPO proceeds: approximately $151.9 million after underwriting discounts and commissions but before offering costs versus approximately $149.4 million after offering costs.
- Future R&D and G&A spending trends, operating cash burn, and any new financing, collaboration or licensing arrangements.
- Clinical supply and manufacturing readiness, patient enrollment feasibility, and the scope and durability of intellectual-property rights licensed from Cold Spring Harbor Laboratory and the University of Southampton.